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Testimony Before the Joint Committee on Consumer Protection and Professional Licensure

Testimony Before the Joint Committee on Consumer Protection and Professional Licensure: House Bill 325, An Act to Update Public Charities Law

Attorney General Martha Coakley Tuesday, July 14, 2009 State House As Prepared for Delivery

Good morning. Thank you, Chairman Morrissey, Chairman Speliotis, and the Committee for the opportunity to testify today in support of legislation that I have sponsored with Senator Steven Tolman, Representative Marty Walz, and Representative Linda Dorcena Forry, House Bill 325, An Act to Update Public Charities Law. I would like to thank Senator Tolman, and Representatives Walz and Forry for their leadership on the important issue of public charities oversight.

As you know, the Attorney General's Office oversees the activity of public charities in the Commonwealth. Currently, there are approximately 21,000 active and compliant charities registered with our office and we have over 1,000 new charities register with us every year. Unfortunately, thousands of our charities have simply ceased to operate without informing the state or dissolving in the manner required by law, and others may continue to operate without registering or reporting. We are charged with ensuring that all charitable organizations operate in compliance with our reporting laws, and that they pursue a charitable purpose.

Since I became Attorney General in January of 2007, we have focused on improving the transparency and diligence of public charities oversight. We have made annual charitable filings available on the web and created an internet search engine for the public to use to verify the status of a public charity. We also now provide a growing list of charities on our website that are out of compliance so that people can reference the list before making a donation. In summary, members of the general public can now access vital and important information about the charities that serve them with a click of a button.

House Bill 325 makes necessary changes to public charities law that will enable the Attorney General's Non-Profit Organizations/Public Charities Division to continue effective and efficient oversight by strengthening the compliance standards for active charities, and professional solicitors, and making it easier for inactive charities to dissolve.

Dissolution of Public Charities

Every year many public charities cease operating based on any number of reasons. To formally dissolve, all public charities must petition the Supreme Judicial Court (SJC) for approval, a process that most inactive charities simply avoid. Many of these charities would like to appropriately dissolve but believe they lack the professional expertise to accomplish a dissolution or perceive the judicial process as being overly burdensome.

This bill changes the requirements for the dissolution of a charitable organization. Charities without assets may dissolve under this bill with only the approval of the Attorney General's Office. Some charities with assets would be allowed to dissolve with the Attorney General's Office approval based on rules to be developed by the SJC. Charities with substantial assets will continue to require action by the SJC. This simplified approach will remove some of the perceived roadblocks to dissolution that have led inactive charities to simply stop reporting rather than formally dissolve.

Public Charities Oversight

This bill amends the charitable organization annual reporting statute by clarifying the Attorney General's authority to issue civil penalties and detailing the notice that is required prior to taking civil enforcement action. These provisions will aid the Office in holding accountable the charitable organizations and their officers and agents who choose to evade or neglect the Commonwealth's reporting requirements.

Professional Solicitor Oversight

This provision strengthens oversight of professional solicitors by authorizing our office to impose civil penalties against professional solicitors, increasing the amount of the professional solicitors' bonds from $10,000 to $25,000 and requiring bonding of all persons engaged in solicitations. Increased bonding amounts and expanded bonding coverage better assures the Office that there will be a source of funds to cover damage and penalty claims and encourages bonding companies to be more diligent in their review of bond applications.

The Office has been very active in this area. We participated in the May 2009 national sweep organized by the Federal Trade Commission against fraudulent badge charities, have initiated both civil and criminal actions against professional fundraisers who fraudulently claim to be seeking contributions for local police, fire and veteran organizations, and are routinely filing claims against the surety bonds procured by these fundraisers.

Public Charities and Professional Solicitor Fees

To better reflect the cost of meaningful oversight, the bill requires charities to pay an initial registration fee of $100. In addition, the bill proposes increases in annual filing fees for those charities with revenues in excess of $1 million per year. Filing fees will be tiered based on the charities' gross revenues. Currently, charities with revenues of $500,000 per year and those with revenues of over a billion pay the same fee: $250. This number does not accurately account for the resources expended by our office in monitoring the activity of much larger public charities. However, our smallest charities, with revenues less than $1 million per year will not pay any increased fees. All reporting and registration fees will continue to go to the General Fund.

The bill also increases the registration fees for professional solicitors from $300 to $1,000, which is consistent with the business purposes of these professionals and the resources necessary to monitor them.

We have worked to acquire the charitable sector's input on these different technical updates and the response has been supportive. We are particularly grateful to the Massachusetts Nonprofit Network and the Massachusetts Council of Human Service Providers for their support and for providing valuable feedback to improve the bill.

The charitable sector is vitally important to the Commonwealth as an economic, cultural and human services driver. The vast majority of our charitable organizations are not large hospitals, insurers or universities; most are smaller, less well funded organizations that meet needs that, without their efforts, would go unserved. We are committed to promoting good governance and integrity in all areas of the sector. I respectfully request that the Committee take favorable action on this proposal at the earliest possible date. We are available to answer any questions you may have.